When getting a property under contract that you want to wholesale,
how many days do you try to get during which you can back out of the deal?
Do you back out if you don’t find a buyer by then, or do you risk your earnest
money and keep looking beyond that period?
What clause do you use to give you the time?
Do you plan on buying the property if you don’t find a buyer in time?
(If working with a realtor, won’t she/he get irritated if you back out?)
Thanks in advance,
Bryon
I am assuming you are trying to wholesale a property that is listed on MLS. These homes are very hard to come by. I would recommend working with people facing foreclosure and working to assign their homes to an investor instead. You are not putting any money down for earnest and you are not obligated to purchase if you can not find a buyer for them. You simply do your best to find a buyer because if you don’t, you make no money. Does that make sense?
I too, am a newbie and can only quote the gurus!
I thought you do put down a small deposit: $100 to $500.
Your contract reads the buyers name (be it your personal name, your IRA, your company name) followed by “and or assigns”) If this is questioned, you say you are not sure how you plan to hold the property - in your IRA or your personal name.
You also have some subject to’s - (weasel clauses) subject to financing acceptable to the buyer, a satisfactory termite inspection. It is unfair to the seller to make outrageous subject to’s but the above are reasonable. The last out might be: “subject to the approval of my partner(s)”.
Finally, while it may be reasonable to expect a 2-week inspection period if you were buying the house as your own residence, you ask for a 3-week inspection period and 4 weeks for the financing.
If this contract is accepted. You file it on the land records immediately to cloud the title and protect your interests in the event an unscrupulous investor trys to go around you - you won’t lose out.
Then, you use your 3-4 week window to market to investors to take you out of the deal.
If you are unable to make the deal work, you will lose your $100-$500 deposit (which should be held in escrow by an attorney). Unless you can produce a turn-down letter or two from a lender or .
Good info from both of you.
Just wondering Vicki, which guru are you quoting?
I am actually finding quite a number of properties that I can
put under contract from my realtor’s MLS at a price that is still
profitable for an investor. I just don’t want to back out on too many
deals and lose a good realtor because I don’t close.
Bryon
Actually - what you really want to do is be is locating potential buyers. Find out what deals they are looking to buy - percentage of ARV/FMV - areas of town, etc.
Most new wholesalers start by finding deals then looking for a buyer to take it. You are much better off having a good list of buyers FIRST - then look for properties that match their profile. Then you will have few problems with having to back out of a deal, because your property is have sold before you even get it.
In fact, a lot of wholsalers I know start calling some of their buyers on their list even before they contract the place, top make sure they currently are in the market for a new investment, give them the rough details of what it is, and have it half sold before they contract.
A strong buyer’s list takes most of the uncertainty out of the process.
I can see that you are inexperience in the wholesaling business, which is ok everybody once was. wholesaling is only great if you have a HONEST investor. The reason why i say that is because he can circumvent and get the deal himself. remember contracts are useless alot of times especially to the HO. I mean come on if you offer the HO 63,000 and the loan (if there is one) is 60,000 with the house being worth 100,000 thats a deal for you. not to mention the amount that you are going to get from the investor.
ok the total pay is 63,000 and you expect to receive about 4,000 to 5,000, not bad for you, right. well the investor that you told about the property is going to say thank you and he is going to persuade the homeowner to sell him the house. and he is going to offer a little more than you did but keep it under your fee. :bobble. basically your telling the investor about a good deal for nothing. I mean what are you going to do sue the homeowner, I dont think so, because he doesn’t have anything. The key is find a HONEST investor, because i would go around you in a heartbeat. Being respectful
From my experience you are smart to use a inspection clause for an easy out rather than something like financing. If a seller presses the financing issue and can prove that you are financible than you could lose your deposit money. Inspection clauses are completely subjective meaning that only you can decide a favorable inspection. Keep in mind the only easy out clause that truly matters is the one that expires last.
Riddling a contract with loads of easy ways out will make any offer appear weak.
Have your buyers list in place prior to looking at any home, what good is a motivated seller unless you have a buyer? Many rookie investors look at homes first because homes do reject them the way that an investor might.
If you dont have deposit money then tie it in with your inspection clause so that no money changes hands unless you have the contract sold.
I hope this helps a bit
I just have a question:
Does this mean that you can tie up a property without earnest money. Could you explain this a little bit. I just want to make sure I’m understanding this correctly. If you ca give me an example so I can get a visual.
Thank you
Yopu cannot tie up a property without some form of earnest money. Basic Real Estate Contract 101 is that a contract is not enforceable until both parties have agreed to it (signed it in most cases, as most states do not recognize verbal agreements when dealing with real estate) and some “consideration” is exchanged. For the Seller, that means they agree to sell their property to you. For you, the buyer, that means you have to give some consideration - normally an earnest money deposit. Without the earnest money deposit of some kind, the deal is not legally binding.
Of course, the EM doesn’t have to be cash or a lot of money, or paid all at one time. It can be $1. It can be $100,000. the amount doesn’t matter.
You can pay it in multiple installments. For instance you can agree that the Earnest Money is $100 with th Buyer paying an additional $500 earnest monay after approval of the inspection.
There is also a technique of offering an IOU for the EM. You make a seperate agreement that you owe the seller $XX.XX as earnest money to be paid after your approval of the inspection, or other action in closing.
The problem with the IOU is that a lot of people with no money do this, and you risk giving the impression of being a wannabe with no funds.
I always give some cash amount for an EM, sometimes in multiple installments. I just try to keep the EM as small as possible.
Pretty much what vardikis said is all wrong. MLS home’s are not hard to come by. You have to have the right realtors in place to get you the deals before someone else snaps them up. All the properties I bought this year have been off the MLS and we’ve wholesaled all but one, using double closings and simultaneous closings. Hogwash!
He also said…“You are not putting any money down for earnest and you are not obligated to purchase if you can not find a buyer for them.” That is complete BS! Please tell me your kidding. You have an obligation to that seller, no matter who the seller is, a bank, a FSBO, an estate sale, an auction, etc. to buy that house. If you can’t assign it then you have to close on it. If you want to get on the wrong side of this business in a quick fashion then do this and your name will be mud. I cannot tell you how much credibility you will build if you simply close the deal. You will then start getting calls from realtors that call you FIRST about possible deals. Why do they call you? Cause they know your good for the money, which means they are gonna get paid!
Same thing for a FSBO. You are responsible for buying that property. They are looking to get rid of their problem and you are the solution and you have it in writing (offer to purchase) that you are going to buy their house. If you assign it, great. If you don’t assign it and you simply tell them…“oh mr. seller I couldn’t wholesale your house” they will get pissed. If you have a contingency in there for an inspection and it fails that, then that’s a different story.
Simply doing your best is not going to cut it. You need to perform! Trust me, you don’t want to be “that guy”. You know…the guy that get’s talked about in your community as the person that can’t perform and always is backing out of contracts. Think that will grow your business?
If you can’t close on wholesale deals then don’t even mess around. I would instead use option to tie up properties. Less risk, no need for any of your money (except your deposit), and its easier to walk from an option.
But damn it close the wholesale deal if that’s the route your going to choose. Hate to sound pissed (well not really but…) put yourself in your buyers shoes. How would you feel if you were on the other end?
Nate-WI
You can get deals off the MLS if you know how to recognize a deal (and a surprising number of people don’t).
Most agents are basically lazy and they get frudstrated if you don’t buy a house after they have shown you 3 of them. So you need to find an agent who isn’t afraid of hard work if they know it will bring them a lot of repeat business.
If you are working with an agent do not DO NOT shotgun lowball offers at everything on the market. All you are doing is wasting everybody’s time. You have to pick out the houes where there is a decent chance of getting a low offer accepted and only make offers on those.
I agree with Gordo. If you can not close on your offers, you will very quickly ruin your reputation and no one will want to work with you.
It really helps to get your offer accepted if your agent infoms the seller that they have done several deals with you and your word is good, and you close on every deal you go into escrow with. If the seller is doubtful, that is often enough to tip him over into accepting the offer.